Resource Commodities

A copper exploration company CEO is leading the effort to develop a blockchain system for supply chain management in mining and has gained the support of high-profile companies.

1. Introduction

Since my last update in May, Kutcho Copper Corp. (KC:TSX.V) has been working hard to advance its flagship copper-zinc Kutcho project in British Columbia. The company defined nine priority drill targets and started drilling in June; they replaced Allison Rippin Armstrong this month who was responsible for environment and community relations and are raising C$4M to support the current Feasibility Study work, permitting efforts and drilling campaign to expand the current resources. On top of this, CEO Vince Sorace has been working on a brand new and very exciting new initiative called MineHub Technologies for over six months now, and felt it was sufficiently advanced to share it with the audience on July 12, 2018. This update will predominantly zoom in on MineHub as it could be a very substantial development for Kutcho and its shareholders.

All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in US Dollars, unless stated otherwise.

2. General update

Before I will discuss MineHub, a brief overview of the current state of affairs seems appropriate. Drilling at Kutcho commenced in the first week of June with two rigs, and the company has a crew of 45 men stationed on site now. This drilling has predominantly a metallurgical and geotechnical nature and less of resource expansion at the moment, and is meant to provide necessary information for the upcoming Feasibility Study (FS) planned for Q2, 2019. This program also has priority over the upcoming resource expansion drill program, which will start mid August, and will be completed in September/October of this year. Also, environmental data is being collected at the moment, needed for the ongoing permitting process. The FS data collection is expected to be completed mid-October.

As a reminder, Kutcho Copper management has planned the scale of the upcoming field program such that they can achieve all the technical data collection for the feasibility in one field season. The easy field season up there is May 21 to October 31. Outside this window, things are not impossible, just more expensive, and therefore the company is looking to complete all drilling requirements within this period.

The proceedings of the ongoing C$4M financing (flow through at C$0.45 and no warrants) will be used towards completing the FS, permitting and for the resource expansion drill program. The good thing is that the money is raised at a premium of today's share price of C$0.38, with no warrants:

I am not a big fan of a short form offering as these shares can be sold immediately without the usual four month hold period, but since Kutcho seems to be bottoming in the summer doldrums with low base metal prices and slightly negative commodity (stocks) sentiment, this is a long-term play on copper and not some trading vehicle, with strong backers, and there is no warrant attached, I don't see much downside and therefore not a lot of reasons for participants to sell off soon. Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) would like Kutcho Copper to proceed asap to the FS, and is supportive here.

On a side note but an important one, CEO Sorace told me that changes are coming up soon in BC legislation, causing the company to move a lot of CSR (Corporate Social Responsibility) consultation work upfront of the permitting process. This will create more certainty later on in the process, but it also causes additional costs earlier on.

When looking at the staff, it definitely caught my eye that a high profile permitting expert like Allison Rippin Armstrong (she handled permitting at Kaminak's Coffee project in Yukon, Canada) left the company in the middle of gathering environmental data and talks to First Nations. It turned out to be for personal reasons, unfortunately, and had nothing to do with the company or project. Continuing as an advisor, Armstrong has been replaced by another very accomplished expert in the field of environmental assessments, permitting and local communities, the acclaimed Sue Graig. She is probably known best for her accomplishments with NovaGold and Aurico Gold, both involvements were awarded by awards addressing her excellence.

More specific, for NovaGold she also played a key role in establishing the participation agreement with the Tahltan Nation (First Nations), and this is the same First Nations group that Kutcho is dealing with now, so this is a strong advantage. In addition, she is also the president of the Yukon Chamber of Mines and a director of Yukon Energy Corp., and has served as the chair of AME Mineral Exploration Roundup, as well as a board member of the AME. AME stands for Association for Mineral Exploration British Columbia, and is a pretty influential body in mining in Canada. In my view, it is clear that the Kutcho Copper project still is in good hands on the environmental/community/permitting front. This pretty much sums up the status on the Kutcho Copper project, now it is time to proceed with MineHub, a project Sorace seems just as exicited about as he is about the Kutcho project.

3. Minehub

MineHub Technologies is one of the first, if not the first, serious application attempts of blockchain in mining. Blockchain in short is a system that allows information to be coded in a decentralized way. Besides the numerous initiatives around with bogus stories on blockchain just to ride the hype, there really is nothing blockchain related working at the moment in the mining industry. Blockchain tech is being developed everywhere now, with a large base in the financial industry, but Sorace noticed about six months ago that certain blockchain applications were also making its way into the energy industry. New developments usually get adopted in finance and high-tech industries first, and it trickles down to lower tech industries afterwards. Mining can be considered pretty low tech, and behind the curve.

Sorace saw opportunities there, as he was tech-oriented earlier on in his career, for example setting up solutions for grid storage for almost a decade. He thinks blockchain will be the most disruptive tech since the internet, and he is certainly not alone in this, as the world's largest companies have all set up departments to incorporate this in their organization processes. It is everywhere now, and it is just a matter of time when it becomes mainstream, not if. Sorace was thinking how to apply this in mining. Soon he came up with supply chain management, as the industry is perfect for it. The current system is antiquated, and would love improvements on costs and efficiencies.